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Oil Price Premium Due to Speculation

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Oil Price Premium Due to Speculation

Banks and financial firms, which deal with oil or have invested in oil, are slowly moving their funds from the oil sector. According to the opinions of analysts, this move takes place because the price of oil will fall again. In fact, this move was not surprising, considering the fact that oil prices have been falling steadily during last weeks.

The latest drop in oil was by as much as $7 fuelling speculation according to some analysts. The drop in oil prices was also considered as a signal, that gasoline prices would fall too. This is the reason why a number of consumers are holding their breath so that they can finally breathe a sigh of relief with lower gas prices.

This drop comes against a backdrop, in which speculators, who normally deal on behalf of various clients, had forecasted that the oil sector would have a long future. It had been predicted, that the prices would continue rising, although this did not come true.

Today it seems that things did not go the way they were planned, with the current picture showing, that the demand for oil is reducing, and that oil supplies are falling globally. Therefore, the world is simply not using so much oil as it should.

Although most consumers may interpret this as good news, falling oil prices are not good. Allow me to explain why.

For a start, it may seem that falling prices are good, since consumers will pay less at the station. However, the truth of the matter is that the prices are nose-diving because the economy is sick. This means that the number of people, who do not have jobs, has simply exploded to alarming levels and thus economic activity as a whole has slowed down.

In short, it means that people cannot afford to buy oil. Additionally, the unemployment means that consumer spending has suffered a big hit, and therefore goods are simply staying at the shelf for far too long.

This in effect means that with decreasing spending the growth of the economy will be slowed down. In the long term the country may fall into a recession, which may be hard to come out of against a background of other growing economies.

Furthermore, the fact that Europe has been hit by a debt crisis has not improved the situation. On the contrary this has led to an overall reduction in the demand for various commodities. The eurozone debt crisis has therefore contributed greatly to a lack of money in the world economy, and subsequently a lowered demand for oil.

However, the situation does not look so grim, because there are countries which have not really been affected by the falling prices of crude oil. Countries such as India and China continue to demand more and more oil due to increasing demand and growing economies, especially in the manufacturing industries.

So, falling crude oil prices do not really mean that the prices have fallen. It simply means that the various costs that consumers incur have been transferred elsewhere.

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